Optimal Allocations with $\alpha$-MaxMin Utilities, Choquet Expected Utilities, and Prospect Theory

Patrick Beißner and Jan Werner
Additional contact information
Patrick Beißner: Center for Mathematical Economics, Bielefeld University
Jan Werner: Center for Mathematical Economics, Bielefeld University

No 722, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: The analysis of optimal risk sharing has been thus far largely restricted to non-expected utility models with concave utility functions, where concavity is an expression of ambiguity aversion and/or risk aversion. This paper extends the analysis to $\alpha$-maxmin expected utility, Choquet expected utility, and Cumulative Prospect Theory, which accommodate ambiguity seeking and risk seeking attitudes. We introduce a novel methodology of quasidifferential calculus of Demyanov and Rubinov (1986, 1992) and argue that it is particularly well-suited for the analysis of these three classes of utility functions which are neither concave nor differentiable. We provide characterizations of quasidifferentials of these utility functions, derive first-order conditions for Pareto optimal allocations under uncertainty, and analyze implications of these conditions for risk sharing with and without aggregate risk.

Keywords: quasidifferential calculus; ambiguity; Pareto optimality; $\alpha$-MaxMin expected utility; Choquet expected utility; rank-dependent expected utility; Cumulative Prospect Theory (search for similar items in EconPapers)
Pages: 36
Date: 2025-07-18
New Economics Papers: this item is included in nep-mic and nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
https://pub.uni-bielefeld.de/download/3005286/3005287 First Version, 2022 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:722

Access Statistics for this paper

More papers in Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University Contact information at EDIRC.
Bibliographic data for series maintained by Bettina Weingarten ().